On Fintech and Financial Inclusion
The cost of financial intermediation has declined in recent years thanks to technological progress and increased competition. I document this fact and I analyze two features of new financial technologies that have stirred controversy: returns to scale, and the use of big data and machine learning. I argue that the nature of fixed versus variable costs in robo-advising is likely to democratize access to financial services. Big data is likely to reduce the impact of negative prejudice in the credit market but it could reduce the effectiveness of existing policies aimed at protecting minorities.
This paper was prepared for the 2019 BIS Annual Research Conference. I am grateful to my discussants Manju Puri and David Dorn, to Hyun Shin, Marina Niessner, and participants at the 2019 BIS Annual Research Conference. I thank Marcos Sonnervig for outstanding research assistance. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research.